The Philadelphia Fed Business Index for July increased to 15.9, up from -4.0 last month and better than the expected -1.0. New Orders shot up to 18.4 from 2.3, while Shipments rose to 23.7 from 8.3. Unfilled Orders fell to 5.7 from 9.3, and Delivery Time decreased to -4.7 from 13.6. Inventories dropped to -1.3 from 3.6 last month. Prices paid went up to 58.8 from 41.4, while Prices received climbed to 34.8 from 29.5.

Employment And Workweek Indexes

The Number of Employees index turned positive, moving to 10.3 from -9.8 last month. The Average Workweek saw a slight improvement, changing to 0.4 from -1.6. All three indexes hit their highest levels since February. The employment index shows that employment is increasing, and rising price indexes indicate ongoing price rises. Future activity indicators suggest continued growth in the next six months. While the index can be volatile and usually has little market impact, it offers insights into business expectations. This unexpectedly strong report challenges the common belief that the economy is rapidly weakening. The big jump in new orders and shipments suggests demand is staying strong. This resilience might let the Federal Reserve keep a firm stance for longer than many expect. The rise in the prices paid index raises concern for us, despite better delivery times. This regional inflation spike contrasts with the latest national Consumer Price Index report, which showed inflation cooling to 3.0% in June. This difference creates uncertainty and implies inflation won’t decrease in a straight line.

Monetary Policy And Market Strategies

This data supports the idea that the central bank might raise interest rates again. The CME FedWatch tool shows that markets are pricing in over a 90% chance of a rate hike in late July, and this report does nothing to change that view. We think traders in derivatives should rethink positions that depend heavily on rate cuts in 2023. It’s key to remember that this is a regional survey, contrasting with national trends. For example, the national ISM Manufacturing PMI has been below 50 for eight months, indicating contraction. The strength seen here could mark a turning point for the sector, or it might just be an exception. The unexpected strength of this report brings uncertainty, which often leads to market volatility. Historically, large shifts in economic data can cause short-term spikes in the CBOE Volatility Index (VIX), which is currently near multi-year lows around the 14 level. We believe option premiums are relatively low now, making this a good time to consider strategies that benefit from increased volatility. Given these mixed signals, we recommend options strategies over straightforward bets in the coming weeks. Traders might consider buying call options on industrial or material sector ETFs to capitalize on the strong activity data. Hedging these with puts on the broader S&P 500 or rate-sensitive tech stocks seems like a wise response to ongoing inflation signals. Create your live VT Markets account and start trading now.

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